"After three decades of 9.8% average annual GDP growth, China’s economic expansion has been slowing for 13 consecutive quarters – the first such extended period of deceleration since the economic policy reform, was launched in 1979. Real GDP grew at an annual rate of only 7.5% of this year".
There is a growing bearishness among investors and anxiety over the future rate growth of its economy.Many
expecting an unavoidable hard landing.
Mr Justin Yifu Lin a former chief economist and senior vice president of the World Bank says: "China’s economic slowdown since the first quarter of 2010 has apparently been caused mainly by external and cyclical factors. Facing an external shock, the Chinese government should and can maintain a 7.5% growth rate by taking counter-cyclical and proactive fiscal-policy measures, while maintaining a prudent monetary policy. After all, China has high private and public savings, foreign reserves exceeding $3.3 trillion, and great potential for industrial upgrading and infrastructure improvement".
Indeed, China can maintain an 8% annual GDP growth rate for many years to come, because modern economic growth is a process of continuous technological innovation and industrial upgrading. One can argue that this is the same for developed economies,but there is a fundamental difference, the latter have always been on the frontier of R&D which is costly and risky.
By contrast developing countries benefit from the “latecomer’s advantage”: technological innovation and industrial upgrading can be achieved by imitation, import, and/or integration of existing technologies and industries, all of which implies much lower R&D costs".
According to the Growth Commission led by Nobel laureate Michael Spence, "13 economies took full advantage of their latecomer status after World War II and achieved annual GDP growth rates of 7% or higher – at least twice as high as developed countries’ growth rates – for 25 years or longer.
China became one of the 13 economies after 1979. Because the country’s latecomer status explains its 33 years of rapid economic growth", the key to understanding its potential for further rapid growth in the future lies in estimating how large those advantages still are.
"Per capita GDP, which reflects a country’s average labor productivity and its overall technological and industrial achievement, is a useful proxy to estimate latecomer’s advantage. That is, the per capita GDP gap between China and developed countries essentially reflects the gap between them in terms of overall technological and industrial achievement.
According to the most up-to-date estimate by the late economic historian Angus Maddisson, China's per capita GDP in 2008 was US$ 6725, which was 21% of per capita GDP in the United States. That is roughly the same gap that existed between the US and Japan in 1951, Singapore in 1967, Taiwan in 1975, and South Korea in 1977 – four economies that are also among the 13 successful economies studied by the Growth Commission. Harnessing their latecomer’s advantage, Japan’s average annual growth rate soared to 9.2% over the subsequent 20 years, compared to 8.6% in Singapore, 8.3% in Taiwan, and 7.6% in South Korea.
China’s annual growth potential should be a similar 8% for the 2008-2028 period. To realize its potential growth as a latecomer, China needs, above all, to deepen its market-oriented reforms, address various structural problems, and develop its economy according to its comparative advantages".
There is a growing bearishness among investors and anxiety over the future rate growth of its economy.Many
expecting an unavoidable hard landing.
Mr Justin Yifu Lin a former chief economist and senior vice president of the World Bank says: "China’s economic slowdown since the first quarter of 2010 has apparently been caused mainly by external and cyclical factors. Facing an external shock, the Chinese government should and can maintain a 7.5% growth rate by taking counter-cyclical and proactive fiscal-policy measures, while maintaining a prudent monetary policy. After all, China has high private and public savings, foreign reserves exceeding $3.3 trillion, and great potential for industrial upgrading and infrastructure improvement".
Indeed, China can maintain an 8% annual GDP growth rate for many years to come, because modern economic growth is a process of continuous technological innovation and industrial upgrading. One can argue that this is the same for developed economies,but there is a fundamental difference, the latter have always been on the frontier of R&D which is costly and risky.
By contrast developing countries benefit from the “latecomer’s advantage”: technological innovation and industrial upgrading can be achieved by imitation, import, and/or integration of existing technologies and industries, all of which implies much lower R&D costs".
According to the Growth Commission led by Nobel laureate Michael Spence, "13 economies took full advantage of their latecomer status after World War II and achieved annual GDP growth rates of 7% or higher – at least twice as high as developed countries’ growth rates – for 25 years or longer.
China became one of the 13 economies after 1979. Because the country’s latecomer status explains its 33 years of rapid economic growth", the key to understanding its potential for further rapid growth in the future lies in estimating how large those advantages still are.
"Per capita GDP, which reflects a country’s average labor productivity and its overall technological and industrial achievement, is a useful proxy to estimate latecomer’s advantage. That is, the per capita GDP gap between China and developed countries essentially reflects the gap between them in terms of overall technological and industrial achievement.
According to the most up-to-date estimate by the late economic historian Angus Maddisson, China's per capita GDP in 2008 was US$ 6725, which was 21% of per capita GDP in the United States. That is roughly the same gap that existed between the US and Japan in 1951, Singapore in 1967, Taiwan in 1975, and South Korea in 1977 – four economies that are also among the 13 successful economies studied by the Growth Commission. Harnessing their latecomer’s advantage, Japan’s average annual growth rate soared to 9.2% over the subsequent 20 years, compared to 8.6% in Singapore, 8.3% in Taiwan, and 7.6% in South Korea.
China’s annual growth potential should be a similar 8% for the 2008-2028 period. To realize its potential growth as a latecomer, China needs, above all, to deepen its market-oriented reforms, address various structural problems, and develop its economy according to its comparative advantages".
